Expectations of future care needs and wealth trajectories in retirement

Increasing longevity means more people are living to older ages at which they are likely to require long term care. There is considerable concern among policy makers that people do not understand these risks, and that they are... [ view full abstract ]

Increasing longevity means more people are living to older ages at which they are likely to require long term care. There is considerable concern among policy makers that people do not understand these risks, and that they are not making appropriate financial preparations. We use data on a large representative sample of older retired individuals from the English Longitudinal Study of Ageing to show that people are able to report expected chances of needing care in future, and that these expectations are correlated with known risk factors. Furthermore, we show that those with higher expectations of moving into a nursing home in future drew down their wealth less rapidly over the previous six years than those with lower expectations. This suggests that individuals are not in general oblivious to the risks they face, and may well be making economic choices taking those expectations into account.